The American Clinical Laboratory Association (ACLA) has filed a lawsuit alleging the new Medicare reimbursement system for lab tests goes against what Congress intended in the Protecting Access to Medicare Act (PAMA) and would reduce payments to labs by about $670 million in 2018.

CMS made the changes in an update to the Clinical Laboratory Fee Schedule (CLFS). Under the final rule, the payment amount for a test on the CLFS beginning in 2018 “generally will be equal to the weighted median of private payer rates determined for the test, based on the data of applicable laboratories that is collected during a specified data collection period and reported to CMS during a specified data reporting period.”

This was purportedly to align CLFS with PAMA data reporting requirements. ACLA argued it actually went against the law’s intent on those applicable labs reporting market information on private payers, alleging CMS “arbitrarily exempted” the vast majority of the lab market from this requirement. Instead, data was largely based on two of the largest lab companies—Laboratory Corporation of America Holdings (LabCorp) and Quest Diagnostics—which the lawsuit said “have much lower cost structures.”

The result, according to the complaint, is a system which “cherry-picks data from only a small portion of the market that overall receives the lowest” private payer rates.

“CMS clearly disregarded and violated the statute’s specific, unambiguous directives requiring commercial rate information to be reported and collected from a broad, diverse group of market participants,” said Mark D. Polston, former chief litigation counsel for CMS and now partner at King & Spalding, the law firm which will represent ACLA in the suit.

Quest and LabCorp both released statements saying they support the ACLA’s lawsuit, calling the process to develop the market-based lab payment system “highly flawed.”

“Instead of protecting access to the critical laboratory services our industry provides, the damage caused by this reckless process will ultimately limit Medicare beneficiaries' access to lab testing,” said Quest chairman, president and CEO Steve Rusckowski.